Inside Israel’s covert economic ties with rival nations Trade without borders

Beneath the surface of Israel's ongoing hostilities with several Muslim-majority countries, close economic ties exist between these sworn adversaries. This was revealed in an extensive investigative report published a year ago by the Israeli economic outlet Globes.

The world's largest Muslim-majority nation, Indonesia, formally lacks diplomatic and trade relations with the Jewish state. Yet, in 2022, goods worth $77.1 million were imported from Indonesia to Israel. This amount includes significant transactions for the supply of oils and fabrics worth $15.5 million, footwear valued at $10 million, as well as furniture and other goods. The peak of Israeli-Indonesian trade occurred in 2021, when exports from the Southeast Asian nation bordering the Malacca Strait to the Middle East reached $92.1 million.

Around a year ago, Malaysian Prime Minister Anwar Ibrahim banned Israeli-registered ships from docking in the country’s ports. The decision aligns with Malaysia’s foreign policy stance, which includes tacit support for Hamas’s military wing, the Izz ad-Din al-Qassam Brigades, operating freely within its borders. Additionally, Kuala Lumpur serves as a significant hub for channelling funds to pro-Palestinian organizations.

Malaysia and Israel have no diplomatic relations. Yet, in 2014, Malaysian exports to the Israeli market reached a record $50.6 million. Although this figure dropped to $10.6 million by 2022, trade between the two nations continues. Malaysia supplies Israel with electrical equipment, machinery, rubber, chemical products, and even food items—highlighting the complex interplay of politics and economics between these estranged nations.

In 2022, Pakistan exported textiles, toys, and sugar to Israel, amounting to $3.62 million. However, perhaps the most remarkable trade relationship involves Israel and Afghanistan (!). According to Israeli experts, imports from Afghanistan totalled just $2,000 in 2017, grew to $244,000 in 2019, and amounted to $64,000 shortly before the Taliban came to power. Afghan exports to Israel included straw, animal feed, seeds, fruits, plants, and other agricultural products.

Similarly unusual are the trade links between Israel and Somalia. While Somali pirates attempted to seize ships belonging to Israeli shipping companies, Somali merchants exported plants, oilseeds, fruits, fish, molluscs, and livestock to Israel, worth $162,000 in 2014. However, the COVID-19 pandemic negatively impacted this trade, with Somali exports to Israel dropping to just $13,000 by 2022.

The pandemic also took a toll on the once-thriving trade between Israel and Tunisia. Annual trade, which stood at $2.48 million in 2015, declined to $2 million in 2018 and nearly vanished by 2022. A significant portion of these figures previously came from large oil deals.

Israeli journalists note that these examples represent just the tip of the iceberg. In Israeli stores, one can find kits for preparing the traditional Iranian dish ghormeh sabzi produced by the Iranian company Kamchin, as well as Coca-Cola manufactured in Erbil, Iraq.

Experts believe that direct connections between Israeli traders and sellers in Iran or Iraq are highly improbable. Instead, the goods are likely purchased by Turkish companies, which repackage and relabel the items before selling them in Israel. Israeli buyers, unaware of the products’ origins, unwittingly purchase items from countries they could never visit.

Trade with Southeast Asian countries, however, involves a more precarious process. It begins with clandestine negotiations to finalize a commercial deal, where every detail matters. Each aspect—cash flow, invoicing, and route planning—must be meticulously arranged. A single misstep could attract the attention of authorities, leaving local merchants to face the consequences.

Once the deal is struck, international freight forwarders step in. Their role is to chart a route that accounts for every logistical challenge. Which third country will serve as a transshipment hub? What should be stated on invoices and bills of lading (documents issued by carriers to certify ownership of goods)? Should containers be swapped at intermediate ports? Every decision must minimize risks, ensuring that the goods reach their destination without complications.

Once goods are shipped, say from Pakistan to Singapore, the logistics process becomes even more intricate. In Singapore, a new bill of lading is issued for containers destined for Israel, and if necessary, the containers themselves are swapped. In some cases, these operations are conducted quite openly. For instance, shipping companies in countries like Indonesia include a “Political Bill of Lading” option in their price lists, specifically for cargo headed to Israel. Once the ship sets sail, the cargo—now under new documentation—can be tracked by Israeli freight forwarders.

Naturally, adding transshipment points increases costs. For example, the reloading and re-documentation of goods from Pakistan in Singapore can result in delays of up to six weeks and higher expenses. However, the cost of goods from Pakistan is typically so low that it offsets these additional charges. This price advantage is why many Israeli businesses prefer sourcing products from Pakistan rather than China.

Payment, however, presents a major hurdle. Israeli companies cannot directly pay for goods purchased from Afghanistan, Tunisia, Malaysia, or Somalia. To navigate this, shell companies are often created, or transactions are routed through intermediaries in neutral countries such as the US or China, where all financial operations are processed discreetly.

Another crucial channel for trade between the Muslim world and Israel lies in the free trade zones, such as the Jebel Ali Port in the UAE and Jordan's capital, Amman. Jebel Ali alone handles goods worth $104.2 billion annually. Following the Houthi blockade of Red Sea shipping routes, ships carrying goods for Israel have been redirected here. At Jebel Ali, cargo is transferred to container ships or moved overland through Jordan, crossing the Allenby Bridge, which connects the Hashemite Kingdom with the West Bank.

However, Israeli experts voice concerns over the rising costs of such shipments due to ongoing regional conflicts. With the resurgence of war in the Middle East, shipping companies and freight forwarders have introduced a "war surcharge" of $50 to $100 per container. Considering a single container ship can carry up to 8,000 containers, this amounts to an additional $400,000 to $800,000 per voyage, raising questions about the economic viability of these routes.

Air transport is unlikely to provide a viable alternative to maritime shipping. Airlines are reluctant to operate near Israel and Iran due to the risk of being caught in crossfire, further complicating the region's already precarious logistics network.

Ironically, Israel's economic efficiency today heavily depends on cooperation with its Arab partners in the UAE, Jordan, and Egypt, as well as on shadowy connections with nations officially considered adversaries of the Jewish state.

Experts note that these grey trade networks are not unique to Israel. Similar mechanisms are employed in other areas of global commerce. For instance, Russia uses comparable routes to circumvent sanctions imposed by the US and its allies, enabling its goods to reach European and American markets despite the restrictions.